OECD Economic Surveys Slovenia OVERVIEW
Slovenia
September 2017
OVERVIEW
This Overview is extracted from the 2017 Economic Survey of Slovenia. The Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries.
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OECD Economic Surveys: Slovenia© OECD 2017
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Executive summary
● Slovenia’s recovery is strengthening
● Investing in skills would raise incomes and make growth more inclusive
● Attracting investment and fostering competitive firms
9EXECUTIVE SUMMARY
Slovenia’s recovery is strengthening
Income convergence has restarted
Growth has picked up to a pace exceeding the EU15 average, thanks to recent structural reforms, business restructuring, supportive monetary conditions and improved export markets. Lower unemployment and higher real incomes are underpinning consumption.
Business investment is rising, although it remains low relative to GDP. Public debt and non-performing loans are being reduced from high levels. However, Slovenia faces several socioeconomic challenges, particularly rapid population ageing. The government’s National
Development Strategy 2030 aims to improve the wellbeing of its people through strong, inclusive and sustainable growth in the context of the United
Nations’ Sustainable Development Goals.
1
Income gap to the upper half of OECD countries
%
- 30
- 40
- 50
- 60
POL SVK
SVN CZE HUN
- 70
2006 2008 2010 2012 2014 2016
1. See footnote 1 in Figure 9.
Source: OECD Analytical Database.
1 2
Investing in skills would raise incomes and make growth more inclusive
Investment in human capital is important to raise
Employment rate for older workers
(55-64 year-olds), 2016 productivity and to ensure that the benefits of the recovery reach everyone in society. Persistent long-term unemployment and low employment of older workers, combined with an ageing population, magnify the importance of achieving a more inclusive labour market. Workers need to maintain their skills to find and retain well paid jobs, and many of the unemployed have to be reskilled to gain a foothold on the labour market. A number of policies are required to meet the challenge of preparing people for successful careers in competitive and innovative firms that are globally integrated, including training of the jobless and strengthening vocational and university education.
%
70
60
50
40
30
20
10
0
SVN POL SVL HUN CZE OECD
Source: OECD, Labour Force Survey – Sex and Age composition database.
1 2
Attracting investment and fostering competitive firms
More capital would raise productivity and living
Businesses face a relatively heavy regulatory burden standards. Reducing high regulatory barriers would make Slovenia more attractive to domestic and foreign investors. This could be achieved by strengthening inter-agency co-ordination, regulatory impact assessments and the competition authority. Reducing the wide scope of the numerous state-owned enterprises would foster competition, particularly in network sectors. More competitive markets would lower prices, expand consumer choice and stimulate innovation with benefits for well-being and economic growth.
Overall PMR indicator, 2013
2.5
2.0
1.5
1.0
0.5
0.0
Source: OECD PMR indicators database.
1 2
HUN SVK CZE OECD POL SVN
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
10 EXECUTIVE SUMMARY
MAIN FINDINGS KEY RECOMMENDATIONS
Securing long-term fiscal sustainability
The fiscal deficit has fallen sharply to near balance. Public debt is declining but is still high, which, combined with large contingent liabilities such as state guarantees, make public finances The government should pursue its 2020 fiscal balance objective with consolidation totalling ¾ per cent of GDP in 2018-20; frontloading of planned consolidation efforts could help to avoid vulnerable. overheating.
Maintain spending ceilings, pursue efficiency improvements, and adjust the structure of public spending to avoid a renewed increase in public debt.
Pursue faster, well thought-out privatisation so as to further reduce public debt and the high level of contingent liabilities.
Raise the statutory retirement age to 67, and ensure a continuing increase in the effective retirement age. Cover eventual pension shortfalls by a combination of additional contributions, lower pension indexation and increased incentives to work longer.
Ageing will put upward pressure on spending in the years ahead.
Allow hospitals to adjust their health services to changing demand, including by closing under-performing departments.
Give hospitals greater scope to engage in multi-year investments and to keep their realised cost savings.
Raising wages and living standards by investing in skills
Vocational education graduates have poor literacy skills.
Technical programme graduates often do not pursue the occupation for which they have trained.
Improve general skills of vocational students through use of problem-based learning, combined with retraining of teachers.
Raise the work-experience content of technical programmes.
Distribute adult training vouchers, or provide tax credits to increase workers’ training opportunities.
Time spent in training by adults is low.
Long-term unemployment is high.
Increase training to help long-term unemployed to re-enter the labour market, including through a change in career.
Eliminate the legal requirement that wages increase The low employment rate for older workers undermines inclusiveness. Age-related unemployment and disability benefits automatically with age. encourage premature retirement.
Harmonise the maximum duration of unemployment benefit across age groups.
Full-time tertiary enrolment is high, while the high tuition fees for part-time students keep enrolment among older cohorts low.
In addition, outcomes are mediocre and completion rates low. families.
Career guidance is limited.
Equalise tuition fees for full- and part-time students on a per course basis, coupled with grants and loans for those from poor Link university funding to students’ labour market outcomes.
Fostering productivity by improving regulation and enhancing competition
Poor co-ordination between regulatory bodies creates cumbersome procedures, uncertainty and higher costs.
Ensure that the regulatory impact authority’s common RIA framework is applied consistently with effective quality control including through methodology guidance and training.
The competition authority has had few successful cases, and Simplify judicial proceedings. court procedures are long.
Increase resources and staff expertise at the authority.
Shrink the list of regulated professions, and, where regulation is productivity. retained, move to less restrictive forms.
The large number of regulated professions has curbed Infrastructure development has focused on large projects.
Develop a common approach to cost-benefit analysis for project selection.
There are over 650 public enterprises (SOEs – owned by various levels of government), many with subsidiaries in unrelated Strengthen SOE governance by directing them to focus on core activities, allowing more management pay flexibility and sectors. strengthening supervisory boards.
Follow through with privatisation, and narrow the group of SOEs that are considered strategic.
Vertically and horizontally integrated state-owned enterprises in network sectors hamper market entry.
Implement effective separation of activities and non-discriminatory third-party access to networks. Privatise competitive activities, except in sensitive sectors.
Policies to reach the renewable-energy target are costly.
Avoid technology biases in renewable-energy subsidies.
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
11 OECD Economic Surveys: Slovenia
© OECD 2017
Assessment and recommendations
● The Slovenian National Development Strategy 2030
● The recovery is maturing
● Dealing with aging-related spending
● Raising living standards by investing in capital and skills
● Easing regulation and boosting competition
13 ASSESSMENT AND RECOMMENDATIONS
Economic outcomes have improved considerably since Slovenia’s serious economic crisis ended in 2013. Looking ahead, the government is designing a National Development Strategy to create a faster growing and more inclusive economy with competitive globally integrated firms.
An important feature of this Strategy is the integration of the UN Sustainable Development
Goals. This should be combined with policies to ensure sustainable public finances that are inter-generationally equitable, leading to long and healthy lives for all Slovenians.
Slovenia has experienced robust economic growth in recent years (Table 1). Exporters have regained market shares, macroeconomic imbalances have been reduced and the Table 1. Macroeconomic indicators and projections
2012
Current prices
(EUR billion)
2013 2014 2015 2016 2017 2018
Gross domestic product (GDP) 36.0 -1.1 3.1 2.3 2.5 3.8 3.1
Gross fixed capital formation 3.2 1.4 1.0 -3.1 6.8 5.1 6.9
Private consumption 20.4 -4.0 2.0 0.5 2.8 3.7 3.7
Government consumption 7.3 -2.1 -1.2 2.5 2.6 1.9 1.4
-7.9 0.9 Housing -5.8 6.1 -1.0 11.1 11.0
34.7 Final domestic demand -2.2 1.2 1.0 1.5 4.0 3.5
Stockbuilding1 0.2 0.6 0.4 0.8 0.0 0.0
-2.0 34.5 Total domestic demand 1.8 1.4 2.4 4.0 3.5
3.1 26.4 5.7 5.6 5.9 5.5 5.7
2.1 24.9 4.2 4.6 6.2 6.0 6.4
0.8 1.5 1.4 1.1 0.3 0.2 0.0
Exports of goods and services
Imports of goods and services
Net exports1
Other indicators (growth rates, unless specified)
Output gap2 . . -5.8 -4.1 -3.3 -2.2 -0.1 1.3
Potential GDP . . 0.6 1.3 1.4 1.4 1.6 1.7
Employment . . -1.9 1.2 0.1 -0.3 2.1 1.6
9.0 9.7 . . 10.1 8.0 7.3 6.3
Unemployment rate3
GDP deflator . . 0.9 0.8 1.0 0.6 2.6 2.6
Consumer price index . . 1.9 0.4 -0.8 -0.2 2.6 3.1
0.7 0.9 Core consumer prices . . 0.3 0.7 1.3 2.9
Household saving ratio, net4 . . 5.4 5.4 6.9 7.2 6.1 5.3
Trade balance5 . . 5.6 7.5 9.1 9.6 9.9 9.5
Current account balance5 . . 4.8 6.2 5.2 6.8 7.4 7.2
General government fiscal balance5 . . -15.1 -5.4 -2.9 -1.8 -1.0 -0.2
Underlying government primary fiscal balance2 . . -0.7 -1.0 1.3 1.7 1.4 1.4
Gross government debt (Maastricht)5 . . 71.0 80.9 83.1 79.7 76.3 73.3
General government net debt5 . . 14.8 22.5 25.9 29.3 28.5 27.1
Three-month money market rate, average . . 0.2 0.2 0.0 -0.3 -0.3 -0.3
Ten-year government bond yield, average . . 1.1 1.1 1.5 5.8 3.3 1.7
1. Contribution to changes in real GDP.
2. As a percentage of potential GDP.
3. As a percentage of the labour force.
4. As a percentage of household disposable income.
5. Goods and services, as a percentage of GDP.
Source: OECD (2017), OECD Economic Outlook 101 database.
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
14 ASSESSMENT AND RECOMMENDATIONS financial sector stabilised. However, GDP is just reaching its pre-crisis level. Private-sector job creation is picking up, and the unemployment rate has returned to the level sustained during the first half of the 2000s. After a bout of deflation, prices have started to increase. In 2016 the government’s deficit fell to 1.8% of GDP, and its debt started to come down. In addition, the current account remains in substantial surplus. Looking ahead, the elimination of economic slack means that growth will increasingly be aligned with its potential rate, which is already being weighed down by population ageing and the supply ramifications of insufficient business investment to boost productivity growth.
Slovenians have higher living standards in many respects than the OECD average, particularly in terms of personal safety, clean environment, educational outcomes and work-life balance (Figure 1). In addition, the gender wage gap is relatively small and income distribution fairly equal, partly thanks to the redistributive impact of taxes and transfers, which also ensures low levels of poverty (Figures 2 and 3). However, incomes remain well below the OECD average and have not gained vis-à-vis leading OECD economies over the past decade. Though average hours worked are slightly low, the key challenge is to overcome poor labour productivity (Figure 4).
Figure 1. Slovenians’ wellbeing is good across a range of measures
1
Better life index
Slovenia
Income and wealth
10
OECD
Subjective well-being
Jobs and earnings
Housing
8
6
4
2
0
Personal security
Environmental quality Work and life balance
Civic engagement and governance
Health status
Social connections Education and skills
1. Each well-being dimension is measured by one to four indicators from the OECD Better Life Index set. Normalised indicators are averaged with equal weights. Indicators are normalised to range between 10 (best) and 0 (worst) computed over OECD countries, Brazil, Russia, and South Africa according to the following formula: (indicator value – minimum value)/(maximum value – minimum value) x 10.
Source: OECD (2016), Better Life Index Database.
1 2
Total hours worked are low because older people are induced to retire early and the share of long-term unemployment is high. Both phenomena amount to excluding a significant part of the population from gainful employment and higher incomes.
Inclusiveness would be increased by developing skills more fully through education and lifelong learning, especially as labour markets and the nature of work will change over time with the adoption of new digital technologies. The level of labour productivity is lower than in more advanced economies, as a relatively high share of workers are employed in small firms with low productivity (Figure 5) (Banerjee and Cirjakovic, 2017; Banerjee and OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
15 ASSESSMENT AND RECOMMENDATIONS
Figure 2. The gender wage gap is low
The difference between male and female median wages divided by the male median wages
%
40
35
30
25
20
15
10
5
0
Source: OECD Employment Database.
1 2
Figure 3. Poverty and inequality are low
A. Relative poverty rates, 50% threshold
Percentage¹
%
35
Poverty rate before redistribution
Poverty rate after redistribution
30
25
20
15
10
5
0
B. Income redistribution
The ratio (90/10) of the average income of the top decile to that of the first.
Ratio
60
90/10, before redistribution 90/10, after redistribution
50
40
30
20
10
0
1. 2014 for Australia, Hungary and Mexico. 2012 for Japan and New Zealand. The relative poverty rate is defined as the share of people living with less than 50% of the median disposable income (adjusted for family size) of the entire population.
Source: Calculations based on the OECD Income Distribution Database.
1 2
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
16 ASSESSMENT AND RECOMMENDATIONS
Figure 4. The income gap is driven by relatively low labour productivity
Sources of real income differences, 2015
Gaps relative to the OECD average¹ Contribution of labour
GDP per capita resource utilisation²
Contribution of labour productivity³
LUX
IRL
LUX
IRL
CHE
USA
NOR
NLD
AUT
DNK
DEU
SWE
ISL
AUS
BEL
CAN
FIN
CHE
USA
NOR
NLD
AUT
DNK
DEU
SWE
ISL
AUS
BEL
CAN
FIN
GBR
FRA
JPN
NZL
ITA
GBR
FRA
JPN
NZL
ITA
ISR
ISR
ESP
KOR
CZE
SVN
SVK
PRT
EST
POL
HUN
GRC
LVA
TUR
CHL
MEX
ESP
KOR
CZE
SVN
SVK
PRT
EST
POL
HUN
GRC
LVA
TUR
CHL
MEX
-30 030 -90 -60 -30 030 60 90
%%
-60 -30 030 60 90
%
1. The OECD GDP per capita is a population-weighted average of nominal GDP converted using 2015 purchasing power parities (PPPs).
Note that the population of Luxembourg is augmented by cross-border workers, and Norway’s GDP refers to the mainland only.
2. Labour utilisation is measured as total number of hours worked per capita.
3. Labour productivity is measured as GDP per hour worked.
Source: OECD (2017), Economic Policy Reforms: Going for Growth 2017, OECD Publishing, Paris.
1 2
Damjanovic, 2017). Indeed, productivity growth has been lower since the international financial crisis and has lagged most other countries (Figure 6). This reflects, among others, depressed capital investment, including from abroad, and resource misallocation. Business investors have to overcome significant regulatory and competition barriers, including market structures dominated by incumbents that hinder new entry. Publicly owned companies are found in almost all sectors. This can undermine the position of private-sector competitors and poses governance challenges, as the government simultaneously plays the roles of owner, manager and regulator.
Against this background, the main messages of this Survey are that:
● In line with the economic pillar of the evolving Development Strategy, reforms are needed to bolster economic growth and expand job opportunities for all. Together with measures to secure fiscal sustainability, this would contribute to better lives for present and future generations of Slovenians.
● To foster innovative firms that thrive in the global economy, education and labour-market policies must equip workers with the skills required to find good jobs and embark on successful careers and which adapt to the changing needs of the labour market.
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
17 ASSESSMENT AND RECOMMENDATIONS
Figure 5. Productivity is well below that in more advance economies
GDP per hour,
USD, PPP
80
A. Labour productivity, 2015
70
60
50
40
30
20
10
0
POL HUN CZE SVK SVN OECD ESP ITA AUT DEN BEL
B. Employment by enterprise size class
As a percentage of all persons employed, 2013
%
120
1-19 employees 20-49 50-249 250+
100
80
60
40
20
0
C. Labour productivity in micro enterprises (1-9 employees)
Total business economy, value added per person employed, thousand USD PPP, 2013
Thousand
USD, PPP
80
60
40
20
0
Source: OECD.Stat Level of GDP per capita and productivity; OECD (2016), Entrepreneurship at a Glance 2016.
1 2
● To promote competitive firms that invest in productivity-enhancing technologies, regulatory and competition policies should aim at facilitating market entry and exit, which would encourage business investment in innovative technologies and new market models and OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
18 ASSESSMENT AND RECOMMENDATIONS
Figure 6. Productivity growth has slowed since the international financial crisis
Annual % change
A. Average annual productivity growth 2008 to 2015
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
B. Productivity growth (GDP per hour worked, constant prices)
Annual % change
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: OECD.Stat, Level of GDP per capita and productivity and OECD Economic Outlook Database.
1 2 reallocate resources away from non-viable firms, lifting the economy onto a higher growth path.
The Slovenian National Development Strategy 2030
Slovenia is among the first OECD countries to use the United Nations’ 17 Sustainable
Development Goals (SDGs; United Nations, 2017) in designing a national strategy (Government,
2015 and 2016a). Many of these goals overlap with the OECD objective of promoting policies to further well-being and achieve sustainable and inclusive growth. This is particularly the case for policies to stimulate high-quality education, gender equality, climate action and decent working conditions, and to reduce inequality. In many areas Slovenia’s SDG performance is strong, notably in most aspects of the environment. Moreover, income inequality is low.
However, less progress has been made in terms of increasing labour market participation of younger and older workers. Likewise, performance has been unsatisfactory in some health areas, such as tobacco use and obesity (recently triggering new health measures – see below), education participation and outcomes of adults, and some institutional measures such as regulatory assessments and corruption perceptions (with a cost in terms of confidence in national institutions).
OECD ECONOMIC SURVEYS: SLOVENIA © OECD 2017
19 ASSESSMENT AND RECOMMENDATIONS
This Survey focuses on aspects of “stable sustainable economic growth”, labour markets, education, and regulation and competition policy. Good policy in all these areas will have significant benefits in many dimensions. An important one highlighted in the Survey is investment, which is key to raising productivity and, thereby, incomes and well-being. The Survey provides analysis and recommendations across a number of Slovenia’s policy objectives and SDGs, particularly in terms of securing inclusive and sustainable growth.
The recovery is maturing
Economic growth has gathered pace since 2013, after a double-dip recession over the previous six years, and could reach nearly 4% in 2017, in part owing to the stronger international environment and the series of structural reforms implemented in recent years.
Initially, the recovery was led by exports, but it is increasingly being supported by stronger private domestic demand (Figure 7). GDP growth is much faster than the OECD’s estimated
1¾ per cent potential rate, and the OECD’s estimate of the output gap will close during 2017.